General Knowledge · General Awareness
During a routine audit, a bank's vigilance team discovers that a borrower has submitted fake stock statements to avail a higher credit limit under a Cash Credit (CC) facility. The account is currently regular in repayments and has not crossed the 90-day overdue limit. However, the underlying security (stock) is found to be non-existent. Based on the operational accounting and prudential guidelines for frauds, how should the bank re-classify this account immediately and what is the impact on provisioning?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank should transfer the amount to the 'Inter-branch Reconciliation' account and treat it as an internal suspense item until a court verdict is received.
- 2The account should be moved to the 'Sub-standard' category for a cooling-off period of twelve months to allow for a recovery investigation.
- 3The bank must immediately classify the account as a 'Loss Asset' and provide 100 percent of the outstanding amount as a provision, regardless of the repayment status or the value of other tangible securities.✓
- 4The bank should keep the account as 'Standard' until the first installment is missed, as the borrower is still paying the interest.
Correct answer
The bank must immediately classify the account as a 'Loss Asset' and provide 100 percent of the outstanding amount as a provision, regardless of the repayment status or the value of other tangible securities.
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